It appears that some, and perhaps most, of the CalPERS board members that shun performing their fiduciary duty and justify that by backing the staff that they abjectly fail to supervise, have either lost their minds or are frightfully stupid.

Board member Theresa Taylor has made a clear-cut violation of CalPERS’ confidentiality practices in on the record remarks to a journalist where she tried to dirty up pro-transparency board members. And what offense have the dissidents supposedly engaged in? Still unproven, indeed, unidentified, claims of violating confidentiality by talking to journalists!

On top of that, as we’ll discuss, a press release by board member Margaret Brown offers credible evidence that CalPERS’ board members and staff have engaged in a criminal violation of the Bagley-Keene Open Meeting Act. This substantiates concerns voiced by influential stakeholders about Bagley-Keene abuses. We’ve embedded Brown’s press release at the end of this post.

Specifically, Taylor violated CalPERS’ so-called closed session confidentiality rules. In a blatant show of institutionalized hypocrisy, Taylor presented what she claimed were the findings of a secret investigation to Randy Diamond of CIO Magazine. Brown pointed out that this isn’t the first time Taylor has violated closed session confidentiality. Taylor did so earlier defending CEO Marcie Frost to the Sacramento Bee over Frost’s misrepresentations about her educational background before and after she was hired.

Readers may remember the coverage we gave a couple of years ago to the trumped-up charges of “leaking” made against then-board member JJ Jelincic, where the allegations ultimately collapsed in the face of evidence that nothing that Jelincic had disclosed was a secret.

Nevertheless, that embarrassing experience has failed to cure the organization of its fevered efforts to find someone, anyone, to pin the blame on for its staggering decline in reputation. To advance that goal, CalPERS has hired a big bucks law firm to lead an investigation. However, like its previous efforts, this one will probably go nowhere in terms of unmasking actual wrong-doing. A tell is is that the investigation has been apparently structured to ensure that at least one important source didn’t get talked to.

But the advantage of a secret investigation, in the topsy-turvy World According to CalPERS, is that allows insiders to make stuff up about it. In CIO Magazine, Taylor flouted the closed session confidentiality requirements to claim that the still-secret report implicated board members.

Board member Margaret Brown issued a press release on Sunday that disputed Taylor’s claims about the press investigation and demanded its release. You can be pretty confident that Brown and not Taylor’s description of the report is accurate. If Brown were wrong and the lawyers had found a smoking gun, the last thing Brown would want is to have the report made public. As Brown said, “Now that they have made accusations publicly, they need to either show their evidence or withdraw the allegations.”

But even more important is that Brown described how holding the discussion of investigation in closed session was a violation of the Bagley-Keene Open Meeting Act. And if this violation was knowing, individual board members are subject to criminal penalties (see page 14 of the Attorney General’s guide).

Given that Brown has repeatedly stated that she goes to the press only when she has tried to make changes privately and failed, it seems likely that she’s already raised the objections listed in her press release and failed. That would make the violation indeed deliberate and not a matter of ignorance, and hence criminal.

Bear in mind that California law has strong transparency requirements. The Attorney General has pointed out, “…the Legislature has allowed closed sessions in very limited circumstances….Courts have narrowly construed the Act’s closed-session exceptions.”

As Brown describes, and you can confirm by looking at the relevant meeting notices, CalPERS did go through the form of providing a legal justification for failing to hold the discussion in public. The notice asserted a litigation and a personnel exception.

However, Brown explained why they were not applicable. The personnel exception does not cover board members. And the litigation exception under Bagley-Keene is very narrow. As one California attorney pointed out (emphasis original):

The “attorney-client privilege” secrecy ruse is complete poppycock. The GC [Government Code] 11126(e) closed-session exception severely limits the privilege to situations where the agency has “substantial exposure to litigation” and open session discussion would prejudice the position of the agency in the litigation. This exposure to litigation does not include covering-up wrongdoing by staff or the board. GC 11126(e)(2) states that, “…all expressions of the lawyer-client privilege other than those provided in this subdivision are hereby abrogated.”

Brown points out that if the purported litigation were as imminent as required by reliance upon it as a basis for relegating the investigation to closed session, Jacobs has violated bar rules:

Moreover, if CalPERS were contemplating actual litigation against board members, Matthew Jacobs, the CalPERS general counsel, would have a specific, affirmative obligation under the California Bar Rules of Professional Conduct, to resolve, via written notice to the affected parties, his conflict of interest in representing both parties in the dispute. Ms. Brown is highly confident that Jacobs has provided no such notice to-date.

So which is it? Have members of the CalPERS board engaged in a criminal violation of Bagley-Keene? Or has General Counsel Matt Jacobs violated bar rules? It has to be one or the other or both.

Brown is not the only one to have put the board on notice. For instance, former prosecutor David Soares clearly suspected that CalPERS was engaging in abuse of closed session privileges. He exhorted board members who were stymied to go to the State Auditor. Even though the tone of his suggestion is understated, the fact that he devoted his public comment to this is eye-opening. From the video and transcript of the April 15 board meeting (you can also view it here, starting at 59:25). Key sections:

David Soares: And I just wanted to follow up on my comments at the last meeting, because I’m very concerned about the way that closed session is being used. And I just want to remind the CalPERS Board as individuals of section 11120 of the California Government Code, that is the preference for open government in the state of California.

And I’m also — I want to remind the Board to take a look at CalSTRS policy about closed session, and especially the 11126 Government Code Investment Rule. CalSTRS policy is with regard to investment decisions, the Board shall consider most investment matters in open session, unless such consideration would jeopardize execution of the investment or cause harm to the value of the investment. What I don’t want CalPERS to do is obviously expose negotiations, where outsiders can front-run CalPERS investments. That’s not what I’m talking about. What I am talking about is the governance issue. This agency has had problems with governance. We all know, especially when high fees are sloshing around, that we have had problems at CalPERS with kickbacks even to a former CEO. That kind of money is very dangerous….

The other thing that I want to encourage this Board, I don’t know what you’re discussing this closed session. But if you believe that closed session is being violated under the Government code, you do have the ability to talk to the State Auditor. I know that the State Attorney General has not taken an active role for quite a few years in enforcement of the Bagley-Keene Open Meeting Law. But I can tell you from personal experience, I have filed a complaint with the State Auditor’s office about Bagley-Keene involved in this Board a couple years ago, and I had a very good response. And I know that our State Auditor, Elaine Howle, is now much more active about investigating and publishing public reports about these issues.

Shorter Soares: CalPERS faces the same investment issues as CalSTRS, yet is visibly less transparent when it has more reason to be given its history of criminal conduct. Board members ought to be worried and can find an ally in the State Auditor.

The reason Soares’ speech matters is that separate from anything Brown may have said in private, he put the board on notice that it was apparent, simply by virtue of contrast with CalSTRS’ board meetings, that CalPERS is violating the Bagley-Keene Open Meeting Act. And having been warned, individual board members will find it much harder to assert that violations weren’t deliberate and hence criminal.

Brown also pointed out that again, contrary to staff-toadying view that the CalPERS board has embraced, that she has an individual duty to oppose the actions of fellow board members when they are contrary to beneficiaries’ interests:

As a trustee of approximately $350 billion in assets, Brown emphasized that California law charges her with an explicit legal duty to challenge her cotrustees (fellow board members) when they act contrary to their duty to retirement system beneficiaries. “The law makes each CalPERS board member financially liable for any mismanagement of the retirement system, even if other board members are the cause. Unlike almost all other government officials, CalPERS board members have no legal immunity. Trust law, which binds the board, is designed to discourage a go-along-to-get-along mentality,” Brown said.

CalPERS board president Henry Jones has taken the position that board members should only act internally if they see staff or board members making decisions or engaging in conduct that is detrimental to beneficiaries. This view alone should disqualify Jones for re-election to the board. Has he managed to be on the board for 12 years and not noticed that under Roberts Rules of Order, the losing side on a vote can’t bring it up for reconsideration? And that Bagley-Keene makes it illegal for board members to deliberate outside board meetings?

Taylor and CalPERS are hoist on their own petard. They’ve confirmed that it is they who are the lawbreakers, not the pro-transparency minority on the board that they are determined to block. And it is the anti-transparency, anti-accountability majority that is doing damage to CalPERS’ name. If there were supervising grownups in charge, CalPERS would not be lurching from scandal to scandal. The anti-transparency board faction would rather shoot messengers than clean up deep-seated problems.

Post navigation

19 comments

This is classic dysfunctional organisation behaviour — and putting board members, certainly those like Margaret Brown who at least know how to spell fiduciary unlike the majority of the other board members appear to and knows what the word means — in a transparency “heads I win, tails you lose” dilemma.

It’s a truism that we have nothing to fear but fear itself, but when it comes to perceiving a risk to your position, such as being on the board of CalPERS, being aware of an institution which has not only shown it is willing to consider dirty tricks and coming up with trumped-up accusations but actually done the deed is a difficult dynamic to overlook and not let it affect your own behaviours and actions. Subjecting the hostile, vexatious and aggressive environment is, plain and simple, a effort to neuter the board. It is therefore no accident.

Since such an environment doesn’t create itself, it needs time, resources and manpower from the CalPERS staff to bring it into being, to continue its existence and to expand its reach and effectiveness. Let’s not mince words here — this is a fraud on the state and the beneficiaries whom CalPERS, as an organisation, is funded by and serves (or should be serving; it has instead degenerated into being self-serving).

The state government needs to wake up and smell the coffee. Well, smell something emanating from Sacramento, anyway. I suspect, however, that the state legislature is — in the face of unfunded liabilities — in a deer-in-the-headlights response mode, too afraid to peer under the hood of CalPERS lest it find an oil leak, a seized crankshaft and a radiator which is about to blow. Note to Gavin Newsom: ignorance is never bliss.

Considering the fact that the salaries and administrative budget for CalPERS 2,7000 employees is well north of $400 million dollars a year, I really think that California should be giving the place a general overhaul and try and claw some of that money back again. They are definitely not getting value for money here. One thing in CalPERS’s favour though is that they appear to have some friendly journalists on their side and I have seen articles in a certain Californian newspaper doing their dirty work for them in stuff I thought verging on libel.
I thought Margaret Brown issuing a press release disputing Taylor’s claims about the press investigation and demanded its release kinda funny. In poker, the equivalent would be somebody saying “Call!” If anything, it is like when Robert Mueller accused those Russian companies of interfering in American elections and one of them turned up in a court of law demanding that he prove it and asking about the process of discovery. It would be funny too if Jason Perez, a sergeant with the Corona Police Department on the board, could turn to his fellow board members sometime and say that something they were trying to do is actually illegal and is an arrestable offense just to put the wind up them.

As Yves said, investigating CalPERS’s management and board would open a bigger can of worms: CalPERS’s severe under-funding. Dealing with one would require dealing with the other. The typical bureaucratic-legislative response translates as, “Never do today what you can put off to tomorrow.”

However, the Legislature and the Governor (along with counties, cities, and special districts) have been dutifully paying into the fund.

The problem is that the managers, abetted by the Board of Administration, have been pissing-away returns on unconstitutionally unreasonable (And patently outrageous) fees to “connected” investment managers and developers.

These outside schnooks have kept the AG and other officials incurious by kicking-back a few crumbs as “political speech,” but time has come for officialdom to say, “This ain’t gettin’ on me!”

The lawyer who ran this kangaroo investigation is named Lily Becker. She works for a big San Francisco law firm called Orrick and is the daughter of the late U.S. senator Ted Stevens from Alaska.

Stevens was prosecuted for corruption but the effort collapsed due to prosecutorial misconduct. It seems ironic that she is willing to make a living smearing others given the experience of her father at the hands of those who were willing to be fast and loose with the truth.

The California Attorney General is so comprehensively derelict in enforcing the Rule of Law that the document that for decades was “The Attorney General’s Guide to the Bagley-Keene Open Meetings Law” has been moved to the website of the state Department of Consumer Affairs.

Why? Because Kamala Harris and her successor (whose name I can no longer type after reading “Xavier Basura”) have re-branded the AG as a “public defender” for the criminally mis-managed state government, even though the various branches and agencies already spend millions on in-house and outside counsel. This, by the way, is in direct contravention of California Constitution Art 5 sec 13:

Subject to the powers and duties of the Governor, the Attorney General shall be the chief law officer of the State. It shall be the duty of the Attorney General to see that the laws of the State are uniformly and adequately enforced.

I beg to differ. CalPERS has invested a huge effort in trying to keep up a drumbeat of good press to distract the attention of the one organization they are afraid of, the California legislature, from CalPERS poor performance on multiple fronts. That’s why they are so keen try to impose unconstitutional restrictions on the First Amendment rights of board members.